Input service tax credit cannot be denied merely because input and output services fall under different taxable categories.

Credit of service tax on input services was allowable where the input service was received and consumed in relation to rendering the output service. The rule deeming services to be in the same category applied only when both fell within the same sub-clause of section 65(90), but the broader definition of input service covered taxable services used for providing output service. A leased line obtained from BSNL was necessary for the respondent's business, and a narrow reading of the rule would defeat the object of input tax credit. Credit could not be denied merely because the input and output services were classified under different taxable service categories.

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Issues: Whether credit of service tax paid on input services was admissible when the input and output services fell under different taxable service categories.

Analysis: Rule 3(2) of the Service Tax Credit Rules, 2002 deemed two services to be in the same category only if the input and output services fell in the same sub-clause of clause (90) of section 65 of the Finance Act, 1994. The definition of input service, however, covered taxable services received and consumed by a service provider in relation to rendering output service. The leased line obtained from BSNL was necessary for rendering the respondent's output service, and a narrow construction of the rule would defeat the object of granting credit of tax paid on input services.

Conclusion: Credit of service tax on the input service was allowable to the assessee, even though the input and output services were classified differently.

Ratio Decidendi: Where input service is received and consumed in relation to rendering output service, credit cannot be denied merely because the input and output services fall under different taxable service categories, if the statutory scheme otherwise permits such credit.

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